Signs Your Shopify Store Needs an Inventory Management System

Geoff: Hey everyone, I'm Geoff, the Head of Marketing at A2X, ecommerce accounting automation software for the world's leading Shopify, Amazon, eBay, Etsy, and Walmart sellers, as well as their accounting partners. And speaking of partners, I'm joined today by Jeff, another Jeff, who is way smarter about the topic we're going to be chatting about today, which is when Shopify merchants should consider implementing an inventory management solution.

Why is Jeff smarter, you ask? Well, many reasons, but specifically for this topic it's because he's the CEO of SMB Consultants, an Australian-based consulting firm specializing in delivering connected systems for inventory businesses, ensuring accurate data and efficient workflows that drive exceptional customer experiences. Beyond this video, if you're looking for advice on when to implement an inventory management solution for your specific situation, Jeff is the perfect go-to person to ask. So we've included a link in the description below to get in touch with the SMB Consultants team and Jeff. Jeff, I just want to say thank you so much for joining us here today and sharing your expertise.

Jeff: Yeah, thanks for having me. It's great to be on here.

Geoff: So Jeff, I think I did the SMB Consultants team, or at least I hope I did you guys justice in your description, but what services did I miss?

Jeff: Well, we've changed a lot over the years. Business started in 2008, which is when the iPad actually came out. I was managing an Apple retail store at the time, and we just saw the opportunity where cloud was just becoming available for consumers.

So that's sort of what we were known for initially, being the cash-drawer killers and putting iPads into retail and hospitality businesses. But in 15 years of doing business, our business has evolved. The next part of our journey was we became part of the Xero ecosystem, and we were the original cloud integrators. The actual term "cloud integrator" was coined after the services that we provided, which was effectively like being, one of the terms they used, Lego masters. We were the ones out there finding apps that could connect to one another, because we saw the initial benefit of inventory management systems like Vend at the time, which has now been purchased by Lightspeed, and how they could connect to Xero and help maximize efficiencies within a business. And then we saw how Shopify could connect to Vend, and we became these Lego masters of building software stacks purpose-built for specific industry types.

And then after COVID, we moved higher up the supply chain, because what COVID did was force businesses to look at ways they could sell their product using technology, opening up sales channels such as Amazon and eBay and being able to sell through Kohl's or Woolies, Etsy, Walmart, any of these channels became viable markets, and it really taught businesses how to sell online using technology. So our business evolved as well, we became experts at helping businesses connect their online-selling platforms so they could see all their products and orders in one place, so they could make better data-driven decisions that unlock growth. Because the problem we saw post-COVID was that everybody rushed to open up all these sales channels, and the downflow effect was they had all these different sales channels but no central point of truth. They were trying to manage every sales channel they'd opened up.

So that's where we come in, basically helping businesses connect all of these sales channels so they have one central place to manage their orders, so they know their inventory and can manage it accurately. And then how do they connect to systems, whether that's 3PLs, third-party logistics, or shipping platforms to ship those products effectively. And yeah, that's basically how we've grown. I think our point of difference in 15 years of doing this is moving away from just shipping systems where all we're doing is migrating data. I think there's too much focus on implementing new software and just migrating data, and not enough emphasis on the change management, helping businesses really understand how to use the new software and leverage the integration. So we really work closely with businesses to be a trusted advisor, working alongside them over a period of time so we can unlock that growth as those solutions add value to their business.

Geoff: Yeah, that's awesome. Jeff, fun fact, I don't think you knew this about me, but you mentioned you managed an Apple retail store, that's where I cut my teeth. One of my first real jobs was in Apple retail, that's so cool. Almost around the same time as well, what a small world. Hey, Jeff, just a question for you on your journey, because we're going to be talking about Shopify quite a bit here, and by extension multi-channel sellers, but—

Jeff: Right, I didn't know that.

Geoff: How many Shopify merchants do you think you all have worked with over the course of your business?

Jeff: Yeah, we've worked with, over 15 years, over a thousand businesses we've moved to the cloud, across various industries. It's been quite a journey, looking back it doesn't feel like 15 years, but we've really lived a full generation of tech. We lived through that period of businesses moving from on-premise to cloud, and now businesses are well and truly in the cloud, or a hybrid of the cloud. I don't think cloud is as, we're not having that conversation anymore about where's my data stored, is it safe. It's more about how do I optimize what I have, where are the gaps, some things are working, some things aren't. We have a term for it, we call it "Franken-apps." A lot of these businesses are in this Franken-app stage because they're busy working in the business and adding products reactively, trying to put out fires, and nothing's really working well, it's not cohesive.

I think that's been part of the journey for us, over 15 years we've dealt with a lot of companies, but the value proposition in the service has changed as the technology has moved forward.

Geoff: Well, the concept of Franken-apps is actually quite interesting, and a really good segue into the conversation we're going to be having today, which is about when you should start to consider looking into an inventory management solution. You talked about people experiencing pain and then bringing in solutions to try to solve pain, but you really need to do this thoughtfully and intentionally. Some businesses might think they need an inventory management solution but they don't, and some might have needed it years ago. So Jeff, based on your experience, are there any definite rules or criteria for when a business should absolutely have an IMS in place? Let's talk about things like revenue thresholds or business complexities.

Jeff: Yeah, it's actually, for us that work in the industry, sometimes we take for granted how inventory management is defined, because for a retailer it can be interpreted different ways. For a business running a Shopify ecommerce store, that's their holy grail, that's their single source of revenue or main source of revenue. So when they use Shopify on its own, they see that as the tool they use to sell their products. But by definition, what inventory management lacks for them is the ability to track margins, cost of goods sold, or inventory valuation. Shopify on its own can do inventory tracking, it can track the number of units sold and the number of units you add to the system, but it has no way of tracking your costs. You can't track margins, and there's no way to evaluate your stock. Usually if you talk to a business owner, let's say a fashion designer without an accounting background, they won't relate those two together. That's sometimes where there's a bit of a wrong assumption, they think Shopify does inventory control, I know how many units I have.

And when it gets to the actual finance controller or CFO and they can't see the margins, or how much stock they're holding, or the value of each stock they're sitting on, because they want to fix their cash flow, those questions can't be answered. So that's definitely one of the telltale signs that a business needs an inventory management system, because it adds that extra level of reporting that Shopify on its own lacks.

Geoff: Yeah, so it sounds like what you're saying is it's not necessarily about revenue or order volume, but more about visibility. The second you feel like you're starting to lack visibility on key financial metrics, cost of goods sold is one example, or inventory valuation, that might be a flag. Am I understanding that correctly?

Jeff: Yeah, but there are definitely different styles of businesses that would value that more. For example, if you had a business with a very high profit margin and unlimited supply, so there weren't any issues with stock constraints and replenishment was quite straightforward, you might not need an inventory management system. There are a lot of businesses that use Shopify Plus successfully and don't need it. But for a business that maybe has higher cost, lower margin, and really needs to account for their costs correctly, or has scarcity, maybe they don't have the luxury of unlimited supply and they deal with back orders, or a special-order workflow, or customization, or build to order, it's those types of businesses that need to know how much stock they have on hand.

If you think about COVID, we went through unprecedented scarcity, who imagined we'd run out of toilet paper and people would be running to supermarkets trying to buy it. It happened across the board, across all industries. What it taught businesses is that if you were successful previously by going into the warehouse and looking at what was on your shelves, walking around with a clipboard making decisions based on what you see in front of you, you couldn't do that anymore in a post-COVID world. People needed better metrics, better analytics. It introduced the idea of pre-order, people wanted to be able to finalize the sale and be more cash-flow friendly, they didn't want to lose the sale, but at the same time didn't want to over-commit to the amount of supply they'd be allocated, because that would create another downflow effect.

Another style of business, for example in health and fitness, one of the industries that really boomed was fitness, weights and things.

Geoff: Yeah, I remember I tried to buy 30-pound weights and it was four months on backorder, which was insane. By the way, those weights haven't been touched since, but yeah.

Jeff: Exactly right. Those industries really wanted to introduce pre-order because they knew they had orders placed with just shipping delays, so they wanted to pre-sell that stock to bring cash flow in and keep their stock turns positive, knowing they could commit that, but not over-commit. A lot of businesses struggled to do that with a Shopify-only system because there's no way to track back orders. Technology and products like Cin7, we're Cin7 experts, allow us to introduce those workflows and give business owners the right tools to manage them, where you're not just selling what you have on hand, you're wanting to sell pre-orders, back-order stock, or special orders. That would be another telltale sign or indicator of a business that would want an inventory management system in addition to Shopify.

Geoff: So we started with lack of visibility as one potential flag. I like the second one you mentioned, people worried about potential stock-outs or overselling. Are there other factors or considerations you'd like to add?

Jeff: Yeah, definitely. As I said, post-COVID a lot of the businesses we started working with were the ones successful in pivoting, seeing online selling as the way to evolve and grow their business. They realized they didn't need to be limited to opening physical locations for growth, they could expand through opening multiple online channels using technology, channels like Amazon and Etsy and all the ones I mentioned before.

So obviously every channel they opened, if they didn't have an integrated system that could consolidate all of those channels into one central point of truth, then every channel they open becomes a multiplier of administration work. It often becomes a bottleneck. Maybe it's a time and resource equation, if I open up another sales channel I don't have the resources to manage it, I need staff to upload the products, manage the listings, manage the orders, manage the reverse logistics, the returns and credits. So I don't have the resources, and it becomes a bottleneck. That's another reason, if a business saw success opening up multiple sales channels but lacked the central point of truth to see all the orders in one place or centrally manage product.

Geoff: Totally makes sense. You mentioned one word I'd like you to elaborate on, which I have a sneaking suspicion segues into your next flag, bottleneck. This idea around your current systems stifling growth and turning into a bottleneck. Do you mind talking about that part of the equation?

Jeff: Yeah. Particularly right now it's challenging times for most business owners, and most want to make the right decisions to grow their business effectively. But when they feel like they've got a bottleneck or their growth is stifled because they don't have the right systems, sometimes we see that operationally departments aren't working well together, the accounts team doesn't work with the warehouse team, or sales doesn't work with purchasing. So there's no teamwork happening, and that could be a result of systems that don't work well, or processes that haven't been defined. For us, that's another area where an inventory management system and the right consultant can help, because I think the key to growth is the right mindset of continuous growth and improvement, along with the right connected systems implemented well and with documented processes. You need both.

We see a lot of businesses that have the right systems but not the right processes, and their team aren't aligned, they haven't evaluated how to engineer new processes that leverage the benefits of the software stack. A lot of businesses, the business owner gets pulled back into the business because they're the central point of truth. They're the ones who know the business, there's been staff turnover, people have moved on, the business owner is the only one who knows everything, and they feel flustered. They want to get that information out of their head and into systems so they can hand off to people and do what they want to do, which is grow the business. But they get stuck being pulled back in because their systems aren't operating right and their staff aren't using them correctly. So that's another area where our ideal client work is helping them get from chaos to a point of clarity.

Geoff: Yeah, so just to summarize, it feels like if you're a Shopify merchant wondering when the right time is to start thinking about an inventory management solution, it sounds like: struggling with visibility, worry about stock-outs and overselling, not having a centralized system to manage inventory if you're selling on multiple channels, and this idea around system bottlenecks.

Jeff: Yeah, absolutely. Broadly speaking, that's what we see across most businesses. The one question I usually ask Shopify owners is: if you were to rate how accurate your inventory is on a scale of one to ten, ten being "I trust my inventory totals," one being "I don't trust them at all," that's usually a telltale sign as well. If they come to me a little shy and embarrassed and say it's a two or a three, they're worried about that, because data is king, right? Business owners realize that if they can't trust those numbers, it affects their ability to make better decisions.

That's a real moment where they realize there are so many downflow problems that stem from not being able to trust their inventory accuracy. If they get on top of that, there are other things they can do, make better decisions on what to buy, when to buy, how much to buy, know which stock to get rid of, predict cash flow better. Even with regards to A2X, that problem itself is a problem that exists in businesses that they don't see as a problem, they don't know what they don't know. Reconciling payments is a massive problem in businesses that often goes overlooked, and it drains resources and stifles growth. We love A2X for that reason because it's kind of low-hanging fruit for us, it's really easy to identify that problem in a business because Shopify merchants have been forced through consumer expectation to offer a plethora of payment options now. Seven, eight years ago you'd see PayPal and entering your credit card, those were the two payment methods. Now you've got Klarna, Humm, Zip, Afterpay, so many that people are offering because technology provides choice to customers, you want to open up your markets and provide a better customer experience by opening up the type of payments you offer. But that creates a downflow effect, reconciling those payments. That's probably a fifth trigger point we didn't even mention. That's why you use A2X.

Shopify merchants, this is really important, can use A2X with Xero on its own and it can help them reconcile their payments. But it should be noted that if Shopify merchants want to use an IMS, A2X, you need to use that as a plugin to reconcile payments because you now also need to account for the cost of goods, since Shopify on its own doesn't track cost of goods.

So if you're using an IMS and you've got Shopify and you're trying to reconcile online payments, there's going to be additional work, and they just don't know there's a better solution out there like A2X. Again, it's low-hanging fruit. When we see that scenario, it's a no-brainer, we just say you need to have this because it's going to save you time. The amount of time saved versus the effort and cost of using A2X is a no-brainer.

Geoff: One hundred percent. And the beauty is A2X works nicely in parallel with an inventory management solution. My next question is, let's assume you're hitting the trigger on at least a few of these trigger points and you've decided you need an inventory management solution. Do you mind talking about the sequencing, how to think about when to implement one? Ecommerce and Shopify specifically tend to be quite a seasonal business.

Jeff: Yeah, there's definitely seasonality, but every business is unique. One of the biggest problems businesses have, every business, is limited time and resources. So when they look to implement something like an IMS, which is a massive project with a lot of unknowns, that can often be the bottleneck, fear of the unknown. What is the right timing? Because it never seems to be the right time to do something so big. Somebody like ourselves can help a business fit in a project like this because of our expertise, our process, and our knowledge of the timings and conditions and dependencies of how to fit a project in with the current operations of their business. It could be end of financial year, for example, or after the Christmas holiday break when they need to do a stock-take and inventory levels are low. Those are common ones, but we can literally implement at any time provided we plan the staff and resources. That's really what a business owner wants, they see a window of opportunity to do something like this but don't know how, so it's up to us to help plan that for them and show them how it fits into their current workload.

The common mistake businesses make if they decide to do it on their own, yes they may see time savings and cost savings, but they don't factor in the time of learning the software at the same time as learning how to implement it. Those are two totally different things. You want to learn the software once it's been implemented, not learn how to implement it at the same time, because you lack the experience and context of how the system should be set up to optimize it. Business owners often end up inheriting or adopting their old ways using the new system and don't leverage the benefits.

Geoff: Yeah, one hundred percent. One funny thing is, we talk with thousands of ecommerce businesses. If we did a net-promoter score survey for businesses that implemented an inventory management solution on their own versus those that did it with an integrator or a partner, I'd bet every dollar I own that the score for those who worked with an implementer is by orders of magnitude greater than those who did it alone. We see this time and time again. In fact another situation we see quite a bit is people who tried on their own, went through those cycles, spent that time, and still ended up seeking out the support of an integrator or partner.

Jeff: Yeah, and the intention is right. They rely heavily on the SaaS company's tech support, and support desks are great in the sense that they know the product from a technical point of view. But if you're dealing with an arbitrary support agent each time, they don't have much context on your business. A lot of support tickets that get channeled through ticketing are really more consultative conversations, more of a change-management piece. In today's world there's not a business that would use less than 10 pieces of software.

Geoff: At least not an inventory business, that's for sure.

Jeff: If you look at all the software products people subscribe to on a SaaS platform, it'd easily be over 10. They've probably implemented those and had varying experiences using and implementing them, some successful, some not. But when implementing an inventory management system where there are integrations, people don't realize it's the sum of all those packages working well together and the way the workflows are used throughout the business. With A2X, for example, it's a different workflow.

Geoff: Yes.

Jeff: The typical accounts person wouldn't understand the A2X workflow because it's like introducing a new tool, you have to learn how to use it to make it work well.

Geoff: Yeah, or how to use it in parallel with another solution and make sure the data is flowing, there isn't duplication or overloaded data. There's a lot to consider, I totally agree.

I know this is an impossible question, dependent on people's specific circumstances, order volume, revenue, but you talk about inventory management solutions as an expense. Can you give a rough range of what merchants could expect from a cost perspective? Let's not even talk about integrator or implementer fees unless you'd like to, just the inventory management solution itself, what are the cost expectations there?

Jeff: I mean, typically we deal with businesses ranging from one to 50 million in revenue, that's sort of an indicator, not the only one. If a business is on Shopify Plus, because that's quite a big jump, a business would only go there if it was warranted, that's another indicator. But there are always exceptions to the rule.

In terms of costs, subscription costs for something like Cin7 would start at around $350 USD monthly for five users. I'd say the median is like six to nine hundred dollars for the subscription fees, and implementation fees vary, but typically our fees range from $10,000 to $12,000 up to $50,000, $80,000, depending on the size of the project. So it's not for everyone. In 15 years of doing this, we've grown to say no to certain people, we want to be specific about who's the right fit and who isn't. Businesses that want a trusted advisor who's going to grow with their business, get to know it, and work with them over time toward their goals, that's an ideal fit for us. But somebody just looking for a quick, cost-effective migration of data, that's probably not a good fit for us.

Geoff: Yeah, totally. Okay, well that's really helpful, those are all the questions I had. I think I'm going to add to my summary in terms of when to consider an inventory management solution as a Shopify merchant, because you added a few characteristics I think are important. One, you're doing over one million in annual revenue. Two, you may either be using Shopify Plus or considering it. You might feel like there's a lack of visibility into the business, specifically around key financial metrics like cost of goods sold or inventory value. You might be worried about things like stock-outs or overselling, a lot of that downstream impact of lack of visibility. You're scaling and starting to sell through multiple sales channels, not just Shopify at this point, and need a central system to manage all of that. And last but not least, if the tooling and processes you're currently using are turning into a bottleneck stifling your growth. So it sounds like those are the trigger points, based on everything you said, for when you should start to consider an inventory management solution. Before we hop off, anything you wanted to add?

Jeff: Yeah, no, that sums it up. Another area is probably returns. I think that's another bugbear for a lot of businesses, not all, it depends on the business, but in some industries like fashion retail, post-COVID there was a high percentage of returns. People were doing their online shopping and businesses had to be more flexible in their returns process. Now that COVID has settled, they're realizing there's a cost to doing that, and an administration aspect, being able to manage the stock, the reverse logistics part of it, as well as managing the credits and returns. That can be a really big burden on a business that drives them to look for better systems.

Geoff: So returns as a bonus trigger point for when to consider an inventory management solution, totally makes sense. Hey Jeff, I just want to say I really appreciated this call, I really appreciated you sharing your expertise. Thank you so much for spending the time with us here today. As mentioned, if you feel like anything we've talked about today describes where you are currently in your business and you need support from an integrator like SMB Consultants, we've got the link in the description below. Please reach out to Jeff and team and they'll be more than happy to help. Jeff, thanks again and we'll see you next time.

Jeff: Thanks, Geoff. Thanks for having me. It's been a pleasure.